Bahamad v Wong

The Course of the Offers

1. At the conclusion of the three days set aside for the hearing on 21, 22 and 23 October 2019, the Court made orders and directions governing the parties' conduct of their remaining contests. On 23 October 2019, the Court made directions for submission (a) in relation to the costs of 22 and 23 October and (b) in relation to the making of a specified gross sum costs order. Those orders provided for written submissions to be made in November and early December 2019.
2. But before the first of those written submissions were served by the defendants, on 8 November 2019 the defendants made the plaintiffs an offer through their solicitors, Speed and Stracey, that they would accept an order for specified gross sum costs of the proceedings in the amount of $175,000 inclusive of GST. The defendants' 8 November offer was headed, "Without prejudice except as to costs of the preparation for the determination of the gross sum costs amount". But it did not otherwise indicate that it was a Calderbank letter, nor did it foreshadow clearly that a claim for indemnity costs would be the consequence of non-acceptance of the offer. The letter extensively argued the case for acceptance of the offer then being made. The offer made in the letter was one of a series of counter offers made between the parties up to that point and was put quite simply, "As a counter offer to your offer of $115,000 (inclusive of GST), our clients offer to accept $175,000 (inclusive of GST)."
3. The defendants submit that they left this 8 November 2019 offer open for acceptance during the period from 8 to 14 November 2019. But close perusal of the 8 November 2019 Speed and Stracey letter shows that it did not actually contain any expiry date for the offer it was making. On 14 November 2019, the defendants merely substituted another offer for the offer of 8 November 2019, thereby cutting short the period open for acceptance of that offer.
4. But by then it appears that BCP Lawyers & Consultants, on behalf of the plaintiffs, were probably intending to reject the 8 November 2019 offer. By 13 November BCP Lawyers & Consultants had prepared a letter of that date, rejecting the Speed and Stracey letter of 8 November providing extensive reasons for the rejection and containing a counter offer of a specified gross sum instead of assessed costs of $131,000.
5. But the covering email sending the BCP Lawyers & Consultants' letter of 13 November was dated 15 November. And it must have been sent on 15 November, not 13 November, because it had not been received by Speed and Stracey by the time another letter came from Speed and Stracey on 14 November. The fact that BCP Lawyers & Consultants drafted their letter of 13 November but waited two days to send it is some objective indication that they did not perceive from what had been communicated to them in the 8 November letter from Speed and Stracey that a response by 14 November was time critical.
6. On 14 November 2019, through Speed and Stracey, the defendants submitted a substitute offer for $175,000, inclusive of GST. But this replacement offer was on terms that the plaintiffs should also pay the costs of the specified gross sum costs dispute. The 14 November 2019 Speed and Stracey letter was headed up the same way as the 8 November letter, and said in full: "As matters stand: (1) our clients' offer dated 8 November 2019 of $175,000.00 (Including GST) has not been accepted (nor has any response been received); (2) our clients' evidence and submissions were served on 13 November 2019 in accordance with the timetable; and (3) our clients have to-date incurred costs in support of the 'gross sum' costs order and also the costs order to be made for 22 and 23 October 2019. Accordingly, our clients' offer of 8 November 2019 is replaced with the following offer: (1) the defendants offer to accept $175,000.00 (Including GST) in satisfaction of the plaintiffs' liability under Order 8 of the Orders dated 23 October 2019 that the plaintiffs pay the defendants' costs of the Proceedings; and (2) the plaintiffs pay the defendants' costs in full, up to the date of acceptance, concerning gross sum costs, including the costs order to be made for 22 and 23 October 2019."
7. As this letter indicates, on 13 November 2019 the defendants had served their submissions and evidence on specified gross sum costs order issues.
8. The plaintiffs did not accept the defendants' second offer. Instead their 13 November 2019 response to the defendants' 8 November 2019 offer, counter offering $131,000 was received after the defendants' second offer. No separate and further response was made to the plaintiffs 14 November offer and the Court infers that it lapsed.

Applicable Principles

1. The principles that apply to making awards of indemnity costs based upon the non-acceptance of Calderbank letters are well established. Two fundamental principles must be satisfied. First, the Calderbank letter must be shown to have been a genuine offer of compromise: Leichhardt Municipal Council v Green [2004] NSWCA 341, (at [21] - [24]). Secondly, it must be demonstrated that rejection of the offer was unreasonable: Ofria v Cameron (No. 2) [2008] NSWCA 242, (at [20]). Offerors bear the persuasive burden of satisfying the Court to exercise its discretion in their favour: Evans Shire Council v Richardson (No. 2) [2006] NSWCA 61.
2. The considerations relevant to determining whether a refusal of a Calderbank offer is unreasonable were comprehensively stated in Miwa Pty Ltd v Siantan Properties Pte Ltd (No. 2) [2011] NSWCA 344 ("Miwa"), (at [12]), based on Hazeldene's Chicken Farm Pty Ltd v Victorian WorkCover Authority (No. 2) (2005) 13 VR 435; [2005] VSC 298 ("Hazeldene's"), (at [25]). The Victorian Court of Appeal (Warren CJ, Maxwell P and Harper AJA) in Hazeldene's stated the following factors were relevant considerations in determining whether the rejection of a Calderbank offer was unreasonable: the stage of the proceeding at which the offer was received; the time allowed to the offeree to consider the offer; the extent of the compromise offered; the offeree's prospects of success, assessed as at the date of the offer; the clarity with which the terms of the offer were expressed; and whether the offer foreshadowed an application for indemnity costs in the event of the offeree rejecting it. Ward J (as her Honour then was) also discussed the principles in A v N [2012] NSWSC 549 ("A v N"), (at [14]-[19]).
3. The determination of whether rejection of an offer was unreasonable is an evaluative judgment to be made by reference to the terms of the offer and all their relevant surrounding circumstances: King Network Group Pty Limited v Club of the Clubs Pty Limited (No. 2) [2009] NSWCA 204 (at [11]). The test of unreasonableness should not be upheld other than on clear grounds: Chaina v Alvaro Homes Pty Limited [2008] NSWCA 353, (at [113]). The discretion to award indemnity costs may be refused where the litigation changes, for example: where all the relevant evidence has not been served before the offer, Vale v Eggins (No. 2) [2007] NSWCA 12, (at [22]); where the full parameters of the dispute were still uncertain at the time of the offer: Equity 8 Pty Limited v Shaw Stockbroking Limited [2007] NSWSC 503, (at [42]); or, where the offeror's case changes after the offer: South Eastern Sydney Area Health Service v King [2006] NSWCA 2, (at [85]). And the filing of other pleadings such as a Cross-Claim after the offer may make it more difficult to show that rejection was unreasonable: Rolls Royce Industrial Power (Pacific) Limited v James Hardie & Co Pty Limited (2001) 53 NSWLR 626; [2001] NSWCA 461.
4. Although a Calderbank offer may be made on an inclusive-of-costs basis, the failure to clearly separate out the costs component risks a finding that the evaluation of the reasonableness of the offer is impossible: Rockcote Enterprises Pty Limited v FS Architects Pty Limited (No. 2); Carelli v FS Architects Pty Ltd (No. 2) [2008] NSWCA 205, (at [51]).
5. More complex issues may render it difficult to show that rejection of the offer was unreasonable: Nationwide News Pty Limited v Naidu; ISS Security Pty Ltd v Naidu (2007) 71 NSWLR 471; [2007] NSWCA 377.
6. To assess the reasonableness of non-acceptance of an offer, the Court must evaluate what was disclosed in the material in the proceedings at the time of service of the offer: Castro v Hillery [2003] 1 Qd R 651 ("Castro"), (at [72]); [2002] QCA 359. This assessment of reasonableness must be made without the benefit of hindsight: Miwa, (at [11]).

The Parties' Submissions and the Court's Analysis

1. The defendants seek indemnity costs based on both their 8 November and 14 November letters. They correctly point out in submissions that their first offer was $12,860.63 less than the amount determined by the Court as specified gross sum costs and that both their offers involved a genuine element of compromise. Both those submissions cannot be disputed. But the defendants' application fails on other grounds.
2. Indemnity costs should not be awarded based on the defendants' solicitors' letter of 8 November 2019. The letter does not sufficiently comply with Calderbank principles to allow the Court to order indemnity costs.
3. First, the 8 November 2019 letter does not state the time within which it is open for acceptance by the plaintiffs. This means that the plaintiffs were not given a clear timeframe within which they could consider whether or not to accept the offer without it being withdrawn or superseded. Indeed, it was replaced by another offer made on 14 November before the plaintiffs had time to respond. Indeed as the course of events shows it can be inferred that the plaintiffs expected that they had longer than 14 November to consider the offer, because it was open-ended as to the time for acceptance. But without prior warning they were told on that day that the offer was being "replaced" by another offer, which the Court infers was a withdrawal of the earlier offer.
4. Calderbank letters should make certain the period which the offeree has available to consider the offer, without either accepting or rejecting it, particularly if the offeror intends only to allow a relatively short period for acceptance such as six days as it was here. Such clarity will save the offeree from erroneously thinking that he or she has a longer period of time to consider the offer than the short period that was actually allowed here for consideration. The defendants point out that the plaintiffs did not seek more time to consider the 8 November offer but it was a relatively busy time for the plaintiffs and it is for the defendants to show the reasonableness of an offer including the period allowed, in order for it to qualify with Calderbank principles.
5. Second, at the time the 8 November letter was sent and during the period that was open for consideration, the defendants did not have all the plaintiffs' evidence and submissions on the issue of a specified gross sum costs order and therefore were in a poor position to fairly evaluate the offer being made.
6. Third, six days is an insufficient time to consider an offer which in order to be properly considered by its nature would have required recently detailed analysis of the components of costs being claimed. When Calderbank offers are made proper regard needs to be given to the complexity of what the offeree has to consider, when the time allowed for acceptance is being set.
7. Fourth, although the 8 November letter is headed up "without prejudice except as to costs", it does not clearly state that it is a Calderbank letter (and therefore that Calderbank principles apply), or that an application for indemnity costs will be made if the offer is not accepted. A Calderbank letter should, ordinarily do one of these things, as a clear warning, so the offeree knows exactly how it is proposed to be used if it is not accepted: see for example Ng v Chong [2005] NSWSC 385; Jones v Bradley (No 2) [2003] NSWCA 258. Whilst this may not be a vitiating factor on its own, and if it were the only deficiency could perhaps be ignored, it adds weight to the other vitiating factors already considered here.
8. And indemnity costs should also not be awarded based on the Speed and Stracey letter of 14 November 2019. It suffers the same defect as the earlier letter in that it is headed up "without prejudice except as to costs" but it does not clearly state that it is a Calderbank letter (and therefore that Calderbank principles apply), or that an application for indemnity costs will be made if the offer is not accepted.
9. But more importantly, the defendants have not established that the offer of 14 November 2019 was not bettered in the Court's first judgment. The offer of 14 November 2019 required the plaintiffs to pay the defendants' costs of the specified gross sum application. In the Court's first judgment, the Court did not make any order for costs in the defendants' favour. Although the precisely quantified element of the defendants' 14 November offer of $175,000 bettered the Court's award of $187,860.63 by $12,860.63, it has not been clearly established what would be the recoverable defendants' costs of the specified gross sum costs dispute, which were left at large in the offer. Those costs may themselves have been the subject of another specified gross sum costs order.
10. The defendants' application fails on these grounds. The Court will not award costs in relation to this application on the ground that such an award risks creating another dispute about costs in the course of resolving an existing dispute about costs. This litigation needs to be brought to an end.

Conclusion and Orders

1. For these reasons the Court will make the following order and notation: 1. dismiss the defendants' claim for an order for indemnity costs against the plaintiffs in respect of the costs of the dispute concerning a specified gross sum costs order; and 2. confirm the notation made by the Court in order (2) of the orders made on 3 August 2020, that the Court makes no orders as to cost of the dispute concerning a specified gross sum costs order to the intent that the parties will each bear their own costs of that dispute.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 September 2020